Condensed Consolidated Statement of Profit or Loss For the six months ended June 30, 2024, the Group's profit before tax significantly decreased to HKD 11.76 million, primarily due to a substantial reduction in total revenue and a shift from investment gains to losses, despite a net reversal of expected credit losses Key Figures from Condensed Consolidated Statement of Profit or Loss (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) (Restated) | | :--- | :--- | :--- | | Total Revenue | 138,942 | 368,700 | | Net (Loss)/Gain from Investments | (1,799) | 47,484 | | Net Reversal/(Expense) of Expected Credit Losses | 45,453 | (47,794) | | Profit Before Tax | 11,760 | 115,201 | | Net Profit Attributable to Owners of the Company | 11,162 | 111,269 | | Basic Earnings Per Share (HK cents) | 0.2 | 1.8 | | Diluted Earnings Per Share (HK cents) | 0.2 | 1.8 | Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended June 30, 2024, the Group's total comprehensive income attributable to owners significantly decreased, primarily due to a substantial reduction in net profit, partially offset by smaller foreign currency translation losses Key Figures from Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Net Profit Attributable to Owners of the Company | 11,162 | 111,269 | | Exchange Loss on Translation of Financial Statements of Foreign Operations | (755) | (1,237) | | Total Comprehensive Income Attributable to Owners of the Company | 10,407 | 110,032 | Condensed Consolidated Statement of Financial Position As of June 30, 2024, the Group's total assets increased, primarily driven by growth in bank balances held on behalf of clients, while net current assets decreased, and total equity recorded a modest increase Key Figures from Condensed Consolidated Statement of Financial Position | Metric | June 30, 2024 (HKD thousands) | December 31, 2023 (HKD thousands) | | :--- | :--- | :--- | | Total Assets | 4,293,599 | 4,064,012 | | Total Liabilities | 2,218,148 | 2,002,597 | | Total Equity | 2,075,451 | 2,061,415 | | Net Current Assets | 903,556 | 1,015,868 | | Cash and Cash Equivalents | 164,475 | 122,380 | | Bank Balances Held on Behalf of Clients | 905,221 | 823,120 | Condensed Consolidated Statement of Cash Flows For the six months ended June 30, 2024, the Group generated net cash outflow from operating activities, a minor net cash outflow from investing activities, and a significant net cash inflow from financing activities, resulting in an overall net increase in cash and cash equivalents Key Figures from Condensed Consolidated Statement of Cash Flows (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) (Restated) | | :--- | :--- | :--- | | Net Cash (Used in)/Generated from Operating Activities | (70,846) | 48,435 | | Net Cash Used in Investing Activities | (1,203) | (1,434) | | Net Cash Generated from/(Used in) Financing Activities | 114,866 | (80,889) | | Net Increase/(Decrease) in Cash and Cash Equivalents | 42,817 | (33,888) | | Cash and Cash Equivalents at End of Period | 164,475 | 159,508 | Condensed Consolidated Statement of Changes in Equity For the six months ended June 30, 2024, the Group's total equity slightly increased, primarily due to net profit and share-based payment expenses during the period, partially offset by foreign currency translation losses Key Figures from Condensed Consolidated Statement of Changes in Equity (For the six months ended June 30) | Metric | 2024 (HKD thousands) | | :--- | :--- | | Total Equity at Beginning of Period | 2,061,415 | | Net Profit for the Period | 11,162 | | Other Comprehensive Loss (Exchange Loss) | (755) | | Share Option Expense | 3,629 | | Total Equity at End of Period | 2,075,451 | Notes to the Condensed Consolidated Interim Financial Statements This section provides detailed notes to the condensed consolidated interim financial statements, offering further explanations and breakdowns of key financial figures and accounting policies 1. General Information The Company is incorporated in Bermuda and listed on the Stock Exchange, primarily engaged in corporate finance, asset management, brokerage, lending, financial media, and investment businesses - The Company is incorporated in Bermuda and its shares are listed on the Stock Exchange, stock code 95243 - Principal activities include corporate finance advisory, fund management, securities dealing services, margin financing, lending services, financial media services, and investment trading43 2. Basis of Preparation The interim financial statements are prepared in accordance with HKAS 34 'Interim Financial Reporting' and the Listing Rules, and should be read in conjunction with the Group's annual financial statements for the year ended December 31, 2023 - The interim financial statements comply with HKAS 34 and the Listing Rules issued by the Hong Kong Institute of Certified Public Accountants44 - They should be read in conjunction with the Group's annual financial statements for the year ended December 31, 202343 3. Significant Accounting Policies The Group's accounting policies are consistent with the 2023 annual financial statements, with no significant impact from adopting revised HKFRSs; interest income and expected credit loss provisions for credit-impaired loans were reclassified during the period, without affecting net profit or cash flows - Accounting policies are consistent with the 2023 annual financial statements, with no significant impact from adopting revised HKFRSs45 - Interest income and expected credit loss provisions for credit-impaired loans were reclassified, without affecting net profit in the condensed consolidated statement of profit or loss and other comprehensive income, the condensed consolidated statement of financial position, or net cash flows46 Impact of Presentation Changes for the Six Months Ended June 30, 2023 (HKD thousands) | Metric | As Previously Reported | Reclassification | Restated | | :--- | :--- | :--- | :--- | | Interest Income — Calculated using the effective interest method | 174,986 | 30,814 | 205,800 | | Total Revenue | 337,886 | 30,814 | 368,700 | | Net Expected Credit Loss Expense | (16,980) | (30,814) | (47,794) | 4. Segment Information The Group operates six reportable segments: corporate finance, asset management, brokerage, interest income, investment, and others; in H1 2024, total reportable segment results significantly decreased, but associate contributions were notable, with most operations and assets located in Hong Kong - The Group operates six reportable segments: corporate finance, asset management, brokerage, interest income, investment, and others48 Reconciliation of Total Reportable Segment Results to Profit Before Tax (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Reportable Segment Results | (7,451) | 117,390 | | Share of Results of Associates | 21,493 | — | | Unallocated Corporate Expenses | (2,282) | (2,189) | | Profit Before Tax | 11,760 | 115,201 | - Most of the Group's operations and assets are located in Hong Kong, with the exception of investment properties in the United States52 - Revenue from former related parties (including subsidiaries of Oceanwide Holdings Co., Ltd., Oceanwide Holdings International Co., Ltd., and Minyun Limited) significantly decreased from HKD 162.6 million in H1 2023 to HKD 30.485 million in H1 202452 5. Revenue The Group's total revenue significantly decreased by 62% from HKD 368.7 million in H1 2023 to HKD 138.9 million in H1 2024, primarily due to a sharp decline in interest income calculated using the effective interest method and a shift from investment gains to losses Revenue Breakdown (For the six months ended June 30) | Revenue Source | 2024 (HKD thousands) | 2023 (HKD thousands) (Restated) | | :--- | :--- | :--- | | Corporate finance business fees and commission income | 3,970 | 9,157 | | Asset management business fees and commission income | 2,702 | 5,184 | | Brokerage business fees and commission income | 30,192 | 41,053 | | Interest income business (calculated using the effective interest method) | 42,109 | 205,800 | | Interest income business (calculated using other methods) | 57,773 | 56,653 | | Financial media service fee income | 3,995 | 3,369 | | Net (loss)/gain from investments | (1,799) | 47,484 | | Dividend income | 3,560 | 5,443 | | Total Revenue | 138,942 | 368,700 | 6. Other (Losses)/Income, Net The Group recorded other net losses of HKD 14.084 million in H1 2024, a reversal from net gains of HKD 1.3 million in H1 2023, primarily due to losses from modifying credit loan terms Other (Losses)/Income, Net (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Changes in net assets attributable to other holders of consolidated investment funds | (4,921) | 2,639 | | Exchange gains/(losses), net | 315 | (1,517) | | Corporate guarantees | 2,717 | — | | Loss on modification of credit loans | (12,203) | — | | Miscellaneous income | 8 | 178 | | Total | (14,084) | 1,300 | - Losses of approximately HKD 12.203 million from modifying credit loan terms were recognized in the condensed consolidated statement of profit or loss54 7. Profit Before Tax The Group's profit before tax significantly decreased from HKD 115.2 million in H1 2023 to HKD 11.76 million in H1 2024; staff costs remained stable, depreciation and amortization expenses decreased, and share-based payment expenses for the share option scheme were recognized in 2024 Deductions from Profit Before Tax (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Total staff costs | 81,030 | 81,827 | | Total depreciation and amortization | 10,167 | 19,213 | | Share-based payment expenses — Share option scheme | 3,629 | — | 8. Other Operating Expenses The Group's other operating expenses decreased from HKD 29.487 million in H1 2023 to HKD 27.236 million in H1 2024, primarily due to reduced legal and professional fees, partially offset by increased insurance expenses Other Operating Expenses Breakdown (For the six months ended June 30) | Expense Item | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Advertising and promotion expenses | 756 | 524 | | Auditor's remuneration | 1,232 | 1,225 | | Bank charges | 620 | 610 | | Consultancy fees | 1,622 | 1,647 | | Entertainment expenses | 822 | 1,105 | | General office expenses | 3,266 | 2,979 | | Insurance | 2,670 | 1,310 | | Legal and professional fees | 5,585 | 9,067 | | Office reinstatement and relocation costs | 266 | 2,247 | | Property tax | 3,046 | — | | Repairs and maintenance | 2,070 | 2,173 | | Short-term leases, rates and building management fees | 1,567 | 3,352 | | Travel and transportation expenses | 1,188 | 990 | | Others | 2,526 | 2,258 | | Total | 27,236 | 29,487 | - Total legal and professional fees in H1 2023 were approximately HKD 9.1 million, primarily including approximately HKD 5.7 million in one-off professional fees for corporate transactions60 9. Tax Expense The Group's tax expense significantly decreased from HKD 3.932 million in H1 2023 to HKD 0.598 million in H1 2024, reflecting lower profit before tax; Hong Kong profits tax is calculated at 16.5%, with a two-tiered tax system applicable to eligible subsidiaries Total Tax Expense (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Current period | 598 | 8,855 | | Deferred tax credit | — | (4,923) | | Total tax expense | 598 | 3,932 | - Hong Kong profits tax provision is calculated at 16.5% of estimated assessable profits, with eligible subsidiaries taxed at 8.25% for the first HKD 2 million6162 10. Earnings Per Share Both basic and diluted earnings per share attributable to owners of the Company significantly decreased from 1.8 HK cents in H1 2023 to 0.2 HK cents in H1 2024, consistent with the decline in net profit; share options had a minor dilutive effect on EPS in 2024, with no effect in 2023 Earnings Per Share Calculation (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Profit attributable to owners of the Company (for basic EPS calculation) | 11,162 | 111,269 | | Weighted average number of ordinary shares in issue (for basic EPS calculation) | 6,145,877,218 | 6,145,877,218 | | Profit attributable to owners of the Company (for diluted EPS calculation) | 11,162 | 111,269 | | Weighted average number of ordinary shares in issue (for diluted EPS calculation) | 6,147,760,663 | 6,145,877,218 | - Diluted earnings per share were the same as basic earnings per share in H1 2023, as there were no potentially dilutive ordinary shares in issue66 11. Dividends The Board has resolved not to declare an interim dividend for the six months ended June 30, 2024, whereas a special dividend of 1.1 HK cents per ordinary share was declared for the corresponding period in 2023 - The Board has resolved not to declare an interim dividend for the six months ended June 30, 202467 - A special dividend of 1.1 HK cents per ordinary share, totaling HKD 68.168 million, was declared and paid for the corresponding period in 202367 12. Financial Assets Held for Trading Financial assets held for trading primarily comprise listed equity securities, unlisted equity securities, and private equity funds - Financial assets held for trading include listed equity securities, unlisted equity securities, and private equity funds68 13. Financial Assets Not Held for Trading These assets include unlisted debt securities measured at amortized cost (net of expected credit loss provisions) and unlisted equity securities measured at fair value through other comprehensive income, with the total remaining stable at period-end Financial Assets Not Held for Trading (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Financial assets measured at amortized cost (unlisted debt securities less expected credit loss provision) | 135,586 | 135,586 | | Financial assets measured at fair value through other comprehensive income (unlisted equity securities) | 4,210 | 4,210 | | Total | 139,796 | 139,796 | 14. Loans to Margin Clients Loans to margin clients decreased from HKD 548 million as of December 31, 2023, to HKD 520.4 million as of June 30, 2024; these loans are measured at fair value through profit or loss, collateralized by client-pledged securities, and the Group continuously monitors credit risk Loans to Margin Clients (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Loans to margin clients — measured at fair value through profit or loss | 520,434 | 547,986 | - Loans are measured at fair value through profit or loss and secured by client-pledged securities with a market value of approximately HKD 5.202 billion as of June 30, 202470 - The Group continuously monitors lending ratios to control credit risk and has the right to sell collateral to cover unpaid margin calls from clients70 15. Credit Loans Total credit loans increased, but the net amount after expected credit loss provisions decreased from HKD 422.2 million as of December 31, 2023, to HKD 354 million as of June 30, 2024; loans include unsecured and secured portions with annual interest rates ranging from 2.5% to 12% Credit Loans (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Credit loans, gross | 4,524,339 | 4,412,894 | | Less: Expected credit loss provision | (4,170,339) | (3,990,712) | | Credit loans, net | 354,000 | 422,182 | | Current portion | 332,997 | 422,182 | | Non-current portion | 21,003 | — | - Credit loans bear fixed annual interest rates ranging from 2.5% to 12%72 - Collateral for secured credit loans primarily includes shares of listed and private companies, as well as private company assets72 16. Trade Receivables Net trade receivables increased from HKD 302.3 million as of December 31, 2023, to HKD 317.6 million as of June 30, 2024, primarily due to increased securities trading accounts receivable from brokers and clearing houses; most receivables are due within 30 days Trade Receivables (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Accounts receivable for securities, futures and options contract trading — brokers and clearing houses | 285,573 | 272,879 | | Accounts receivable for securities, futures and options contract trading — cash clients | 30,061 | 29,954 | | Accounts receivable for asset management, corporate finance and other businesses — clients | 26,012 | 21,806 | | Gross | 341,646 | 324,639 | | Less: Expected credit loss provision | (24,001) | (22,367) | | Trade receivables, net | 317,645 | 302,272 | Aging Analysis of Trade Receivables by Due Date (Net of Expected Credit Loss Provision) (HKD thousands) | Aging | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Within 30 days | 293,188 | 278,230 | | 31 to 90 days | 2,167 | 1,036 | | Over 90 days | 22,290 | 23,006 | | Trade receivables, net | 317,645 | 302,272 | 17. Investment Properties The Group holds four residential investment properties in the United States, measured using the fair value model; as of June 30, 2024, their fair value remained at HKD 913.38 million, with no fair value changes recognized in profit or loss during the period - All of the Group's investment properties are four residential properties located in the United States, held for capital appreciation purposes7778 Carrying Amount and Fair Value of Investment Properties (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Carrying amount | 913,380 | 913,380 | | Fair value (Level 3 valuation) | 913,380 | 913,380 | - No fair value changes of investment properties were recognized in profit or loss for the six months ended June 30, 202478 - Fair value is determined using the direct comparison approach as the valuation technique, with no change from the valuation technique as of December 31, 202383 18. Interests in Associates In H1 2024, the Group's investment in Fuzhong Group Limited increased from 15% to 21%, leading to its reclassification from financial assets measured at fair value through profit or loss to interests in associates, reflecting the Group's significant influence over Fuzhong - The Group's investment in Fuzhong Group Limited increased from 15% to 21%, gaining significant influence84 - The investment in Fuzhong has been reclassified from financial assets measured at fair value through profit or loss to interests in associates84 Interests in Associates (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Interests in associates | 288,452 | 1,180 | 19. Other Assets Other assets primarily include long-term deposits for property and equipment, lease deposits, and deposits with the Stock Exchange and clearing houses - Other assets primarily include long-term deposits for property and equipment, lease deposits, and deposits with the Stock Exchange and clearing houses85 20. Property and Equipment The net carrying amount of property and equipment decreased from HKD 85.5 million as of December 31, 2023, to HKD 77.272 million as of June 30, 2024, primarily due to depreciation and amortization Net Carrying Amount of Property and Equipment (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Net carrying amount at end of period | 77,272 | 85,497 | Changes in Property and Equipment (For the six months ended June 30) | Metric | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Net carrying amount at beginning of period | 85,497 | 68,536 | | Additions | 1,203 | 34,037 | | Depreciation | (9,380) | (18,550) | | Net carrying amount at end of period | 77,272 | 82,485 | 21. Bank and Other Borrowings Total bank and other borrowings increased from HKD 674 million as of December 31, 2023, to HKD 798.8 million as of June 30, 2024; these borrowings include secured bank loans and other secured/unsecured borrowings with varying interest rates and collateral Bank and Other Borrowings (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Bank loans — secured | 539,739 | 453,358 | | Other borrowings — secured | 96,252 | 96,253 | | Other borrowings — unsecured | 162,800 | 124,396 | | Total | 798,791 | 674,007 | | Current portion | 620,425 | 674,007 | | Non-current portion | 178,366 | — | - Collateral for bank loans includes client-pledged securities, unlisted equity securities, private equity funds, investment properties, and bank deposits88 - Interest rates range from fixed annual rates of 5% to 7.25% or floating rates of HIBOR plus 3%8889 22. Trade Payables Total trade payables increased from HKD 1.0769 billion as of December 31, 2023, to HKD 1.1336 billion as of June 30, 2024, primarily due to increased amounts payable to cash and margin clients Trade Payables (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Accounts payable for securities, futures and options contract trading — brokers and clearing houses | 6,417 | 10,124 | | Accounts payable for securities, futures and options contract trading — cash and margin clients | 1,114,767 | 1,064,873 | | Accounts payable for other businesses — clients | 12,380 | 1,883 | | Total | 1,133,564 | 1,076,880 | - Amounts payable to brokers, clearing houses, and cash clients are repayable on demand before the settlement date91 23. Share Capital The Company's share capital remained unchanged at HKD 20.657 million, representing 6,197,049,220 ordinary shares of one-third HK cent each; all issued shares rank pari passu in terms of dividends, voting, and return of capital Share Capital (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Issued and fully paid share capital | 20,657 | 20,657 | | Number of ordinary shares | 6,197,049,220 | 6,197,049,220 | - All issued shares rank pari passu in all respects, including all rights as to dividends, voting, and return of capital94 24. Commitments Capital commitments decreased from HKD 3.315 million as of December 31, 2023, to HKD 2.884 million as of June 30, 2024, primarily due to a reduction in commitments for property and equipment Capital Commitments (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Capital contributions payable to private equity funds | 2,280 | 2,280 | | Property and equipment | 604 | 1,035 | | Total | 2,884 | 3,315 | 25. Related Party Transactions The Group engaged in various related party transactions, including interest and commission income from directors and key management personnel, and interest income/expenses with former related parties; revenue from former related parties significantly decreased in H1 2024 Related Party Transaction Income (For the six months ended June 30) | Transacting Party | 2024 (HKD thousands) | 2023 (HKD thousands) (Restated) | | :--- | :--- | :--- | | Directors of subsidiaries, also key management personnel — commission income from securities and futures trading | 11 | 5 | | Directors of subsidiaries, also key management personnel — interest income from margin financing | 48 | 23 | | Directors of subsidiaries — commission income from securities and futures trading | 1 | — | | Directors of subsidiaries — interest income from margin financing | 1 | 25 | | Associates — interest income from margin financing | 247 | — | | Related company — a company whose ultimate beneficial owner, Mr. Lu Zhiqiang, is also a director of its parent company — interest income | — | 21 | | Fellow subsidiaries — interest income from financial assistance | — | 113,444 | | Total (partial) | 85 | 368 | | Total (partial) | 247 | 113,913 | Related Party Transaction Expenses (For the six months ended June 30) | Transacting Party | 2024 (HKD thousands) | 2023 (HKD thousands) (Restated) | | :--- | :--- | :--- | | Key management personnel — interest expense | 265 | 183 | | Associates — consultancy fees | 275 | 300 | | Associates — lease expenses | 270 | 135 | | Related company — a company whose ultimate beneficial owner, Mr. Lu Zhiqiang, is also a director of its parent company — interest expense | — | 2,278 | | Fellow subsidiaries — interest expense from financial assistance | — | 510 | | Total | 810 | 3,790 | Key Management Personnel Remuneration (For the six months ended June 30) | Remuneration Category | 2024 (HKD thousands) | 2023 (HKD thousands) | | :--- | :--- | :--- | | Short-term employee benefits | 13,583 | 10,912 | | Post-employment benefits | 42 | 33 | | Share-based payment expenses — Share option scheme | 2,483 | — | | Total | 16,108 | 10,945 | 26. Fair Value Measurement The Group categorizes fair value measurements into three levels, covering financial assets held for trading, loans to margin clients, financial assets not held for trading, and financial liabilities; no transfers occurred between levels during the period - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (significant unobservable inputs)104 Financial Instruments Measured at Fair Value (HKD thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Financial assets held for trading | 500,133 | 604,541 | | Loans to margin clients | 520,434 | 547,986 | | Financial assets not held for trading | 4,210 | 4,210 | | Financial liabilities measured at fair value through profit or loss | 195,046 | 177,813 | - There were no transfers between Level 1 and Level 2, and no transfers into or out of Level 3 for the periods/years ended June 30, 2024, and December 31, 2023107 - Fair value of Level 3 unlisted equity securities is determined using an option pricing model with an equity allocation approach, while private equity funds' fair value refers to the fund's unadjusted net asset value107 27. Non-Adjusting Events After Reporting Period Subsequent to the reporting period, on August 9, 2024, the Company entered into a settlement arrangement with Yili International Investment Limited regarding credit loans and margin loans - On August 9, 2024, the Company entered into a settlement arrangement with Yili International Investment Limited regarding credit loans and margin loans granted to Yili111 Management Discussion and Analysis This section provides management's perspective on the Group's financial performance, operational highlights, and future outlook, including discussions on the macroeconomic environment, market conditions, and risk management strategies Macroeconomic Environment H1 2024 saw frequent global elections, the US Federal Reserve maintained interest rates, and US stock markets performed well; however, China's economic growth slowed, impacted by a property downturn and employment instability - 2024 is a global election year, with the US presidential election drawing significant attention112 - The US Federal Reserve maintained interest rates in H1 2024, contrary to market expectations of rate cuts, though Chairman Powell hinted at potential short-term reductions112 - The S&P 500 Index rose by 14.5% in H1 2024112 - China's economy grew by 4.7% in Q2 2024, below expectations, impacted by a property market downturn and employment instability112 Hong Kong Stock Market In H1 2024, the Hong Kong stock market remained volatile, with the Hang Seng Index closing at 17,718.61 points; average daily turnover was approximately HKD 110.4 billion, and IPO fundraising decreased by 26% year-on-year; future market volatility is expected due to interest rate adjustments and China's economic risks - The Hang Seng Index closed at 17,718.61 points in H1 2024, with a fluctuation of over 4,500 points113 - Average daily turnover in the Hong Kong stock market was approximately HKD 110.4 billion for the first six months of 2024114 - There were 30 successful IPOs in H1 2024, raising a total of approximately HKD 13.1 billion, a year-on-year decrease of approximately 26%114 - Future stock market volatility is expected to persist, mainly influenced by anticipated interest rate adjustments and risks such as China's economic recovery and policy easing not meeting expectations113 Results and Overview The Group's H1 2024 profit before tax significantly decreased to HKD 12 million, primarily due to a one-off repayment of former related party loan balances recognized in the prior corresponding period; total revenue decreased by HKD 230 million, and adjusted revenue (excluding investment fair value change losses) decreased by 56% year-on-year - Profit before tax in H1 2024 was approximately HKD 12 million, a significant decrease from HKD 115 million in the corresponding period of 2023115 - Total revenue decreased to approximately HKD 139 million, a year-on-year decrease of approximately HKD 230 million115 - Core operating business revenue decreased by approximately 10% year-on-year to approximately HKD 112 million115 - Adjusted revenue (excluding investment fair value change losses) was approximately HKD 141 million, a year-on-year decrease of 56%, primarily due to the recognition of most interest income as a non-recurring item in the corresponding period of 2023115 Business Review Despite challenges from a strong US dollar and high interest rate environment in H1 2024, the Group achieved a turnaround; by increasing bank financing for brokerage, launching an external asset management model, and attracting talent, the Group expanded its AUM and services, while also making progress in overdue loan recovery and cost control - Achieved a turnaround in H1 2024 amidst a strong US dollar and high interest rate environment116 - Committed to increasing bank financing for brokerage business and continuously strengthening financial position116 - Successfully launched an external asset management model, attracted experienced talent, expanded assets under management, and broadened product sales processes116 - Made good progress in negotiating the recovery of several overdue loans and continues to monitor and control costs116 - Corporate finance business was affected by a decrease in transaction volume and delays in IPO timetables116 Financial Review The Group's core operating business revenue decreased in H1 2024, with most major business segments showing a downward trend in revenue, except for brokerage interest income; changes in non-brokerage interest income and net investment gains significantly impacted total revenue Analysis of the Group's Major Business Revenue (HKD millions) | Revenue | H1 2024 | H1 2024 % of Total | H1 2023 | H1 2023 % of Total | Favorable/(Unfavorable) Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Corporate Finance Business | 4 | 3% | 9 | 7% | (56%) | | Asset Management Business | 3 | 3% | 5 | 4% | (40%) | | Brokerage Business | 30 | 27% | 41 | 33% | (27%) | | Brokerage Business Interest Income | 75 | 67% | 70 | 56% | 7% | | Total Core Operating Business Revenue | 112 | 100% | 125 | 100% | (10%) | | Non-Brokerage Business Interest Income | 25 | | 193 | | (87%) | | Financial Media Service Fee Income | 4 | | 4 | | 0% | | Net (Loss)/Gain from Investments | (2) | | 47 | | (104%) | | Total Revenue | 139 | | 369 | | (62%) | Corporate Finance Business Corporate finance business revenue decreased by 56% from HKD 9 million in H1 2023 to HKD 4 million in H1 2024 - Corporate finance business revenue decreased from approximately HKD 9 million in H1 2023 to approximately HKD 4 million in H1 2024119 Asset Management Business Asset management business revenue decreased by 40% from HKD 5 million in H1 2023 to HKD 3 million in H1 2024 - Asset management business revenue decreased from approximately HKD 5 million in H1 2023 to approximately HKD 3 million in H1 2024120 Brokerage Business Brokerage business revenue decreased by 27% from HKD 41 million in H1 2023 to HKD 30 million in H1 2024, primarily due to reduced commission income from global futures products and Hong Kong securities - Brokerage business revenue decreased by 27%, primarily due to reduced commission income from global futures products and Hong Kong securities121 - Commission income from Hong Kong securities trading decreased by 33% to HKD 8 million, while average daily turnover in the Hong Kong stock market decreased by 4% year-on-year121 Brokerage Business Interest Income Brokerage business interest income increased by 7% from HKD 70 million in H1 2023 to HKD 75 million in H1 2024, primarily benefiting from improved treasury management and increased margin loan interest income - Brokerage business interest income increased by 7%, primarily due to improved treasury management leading to higher interest income and increased margin loan interest income122 Non-Brokerage Business Interest Income Non-brokerage business interest income significantly decreased by 87% from HKD 193 million in H1 2023 to HKD 25 million in H1 2024, primarily due to a one-off repayment of former related party loan balances in 2023 - Non-brokerage business interest income decreased by 87%, primarily due to a one-off repayment of a portion of the outstanding loan balance from a former related party in 2023123 Financial Media Service Fee Income Financial media service fee income remained stable at approximately HKD 4 million in both H1 2024 and H1 2023 - Financial media service fee income was approximately HKD 4 million in both H1 2024 and H1 2023124 Net (Loss)/Gain from Investments H1 2024 saw an investment loss of HKD 2 million, a reversal from a HKD 47 million gain in the corresponding period of 2023; the loss primarily stemmed from mark-to-market losses on margin loans, partially offset by fair value gains on financial asset investments - Investment loss in H1 2024 was approximately HKD 2 million, including mark-to-market losses on margin loans of approximately HKD 36 million, offset by fair value gains on financial asset investments of approximately HKD 34 million125 Other (Losses)/Income, Net H1 2024 recorded other losses of approximately HKD 14 million, a reversal from a HKD 1 million gain in the corresponding period of 2023, primarily due to approximately HKD 12 million in losses from modifying credit loan terms - Other losses in H1 2024 were approximately HKD 14 million, primarily including approximately HKD 12 million in losses arising from the modification of credit loan terms126 Expenses Direct costs decreased by 29% to HKD 35 million in H1 2024, primarily due to reduced brokerage commission expenses; staff costs remained relatively stable, decreasing by 1% to HKD 81 million, reflecting resource streamlining - Direct costs decreased by 29% from approximately HKD 49 million in H1 2023 to approximately HKD 35 million in H1 2024, primarily due to a decrease in brokerage commission expenses127 - Staff costs decreased by 1% from approximately HKD 82 million in H1 2023 to approximately HKD 81 million in H1 2024, reflecting resource streamlining127 Impairment Losses In H1 2024, the Group recognized a net reversal of expected credit losses of HKD 45 million, primarily from credit loans to independent third parties, partially offset by expected credit loss expenses for former related party credit loans and bonds - A net reversal of expected credit losses (ECL) of approximately HKD 45 million was recognized in H1 2024 (H1 2023: net expense of approximately HKD 48 million)128 - Primarily a net reversal of ECL of approximately HKD 71 million from credit loans to independent third parties, offset by a net ECL expense of approximately HKD 28 million for former related party credit loans and bonds128 - A net ECL reversal of approximately HKD 44 million for an independent third-party credit loan was due to the completion of loan transfer, with consideration equivalent to face value settled in assignee shares128129 (a) Reasons for Impairment The Group assesses loan impairment losses under HKFRS 9, considering probability of default, loss given default, and forward-looking market data, while regularly monitoring the effectiveness of credit risk standards - Impairment loss provisions adopt HKFRS 9, with assessment factors including probability of default, loss given default, and forward-looking market data130 - The effectiveness of credit risk standards is regularly monitored to ensure timely identification of significant increases in credit risk130 (b) Key Assumptions and Basis for Determining Impairment Amount Credit loans and unlisted debt securities are categorized into Stage 1, 2, and 3 based on credit risk changes; impairment assessment uses an internal ECL model, considering financial instrument tenure, market probability of default, loss given default, and forward-looking market data - Credit loans and unlisted debt securities are classified into Stage 1, 2, and 3 for impairment assessment131 - The internal impairment assessment's ECL model references the expected tenure of financial instruments, contractual terms, market probability of default, market loss given default or discounted recovery rate, and forward-looking market data131 Lending The Group's lending business provides secured and unsecured loans, adopting credit risk policies for management; the loan portfolio is diversified, but the top five borrowers account for 69% of gross credit loans, and net credit loans decreased in H1 2024 (i) The Group's Lending Business and Credit Risk Assessment Policy The Group's lending business provides secured and unsecured loans to individuals and corporations, with credit risk policies covering credit assessment, collateral requirements, and repayment source evaluation to diversify the loan portfolio - The lending business provides secured and unsecured loans to individuals and corporations, earning interest income132 - Credit risk policies are adopted to manage the lending business, including credit assessment, collateral requirements, and evaluation of repayment sources132 - The loan portfolio is diversified by lending to various borrowers, reducing concentration risk132 (ii) Key Terms of Credit Loans Granted (Including Collateral Details), Client Size and Diversification, and Loan Concentration of Major Clients As of June 30, 2024, the Group had 37 credit loans, with principal amounts ranging from HKD 2 million to HKD 446 million and interest rates from 2.5% to 12%; the client base is diversified, but the top five borrowers account for 69% of the total principal amount of the credit loan portfolio - As of June 30, 2024, the Group had 20 borrowers, comprising 15 unlisted companies, 2 listed companies, and 3 individual borrowers133 - 37 credit loans had principal amounts ranging from HKD 2 million to HKD 446 million, with interest rates between 2.5% and 12%134 - Loan types include secured (9%), unsecured but guaranteed (48%), and unsecured and unguaranteed (43%)134 - The top five borrowers constituted 69% of the total principal amount of the Group's credit loan portfolio135 (iii) Reasons for Loan Impairment (and Write-offs) Changes in loan impairment result from assessing credit risk based on factors like credit history, borrower financial condition, and forward-looking information; despite an increase in gross credit loans, the net amount after expected credit loss provisions decreased - Changes in loan impairment are a result of determining credit risk based on various factors such as credit history, borrower's financial condition, and forward-looking information136 - Gross credit loans increased from approximately HKD 4.413 billion as of December 31, 2023, to approximately HKD 4.524 billion as of June 30, 2024137 - Net credit loans after expected credit loss provisions decreased from approximately HKD 422 million as of December 31, 2023, to approximately HKD 354 million as of June 30, 2024137 Aging Analysis of Credit Loans by Due Date (Net of Expected Credit Loss Provision) (HKD thousands) | Aging | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Within 30 days | 51,537 | 94,196 | | 31 to 90 days | — | — | | Over 90 days | 302,463 | 327,986 | | Credit loans, net | 354,000 | 422,182 | Outlook The Hong Kong market remains challenging with a weak IPO market; the Group will prudently deploy resources, focus on product and client-side development, transform transaction processes, and recover overdue receivables to capitalize on market rebound opportunities from interest rate cuts and Greater China's economic recovery - The Hong Kong market has not yet rebounded from its trough, and the IPO market remains weak139 - Will maintain prudent resource deployment, continue to rationally build product and client bases, strive to transform transaction processes into business, and continue to recover long-overdue receivables139 - Is prepared to seize opportunities for a Hong Kong market rebound when interest rate cuts begin and the Greater China economy regains momentum139 Capital Structure, Liquidity and Financial Resources The Group primarily funds operations through internal cash flow, bank financing, and short-term loans; cash levels increased, total borrowings grew by 19% to HKD 799 million, and the gearing ratio was 38%; the Group implements prudent risk management and complies with regulatory requirements - The Group funds its operations through internally generated cash flow, utilization of bank facilities, and short-term loans and notes from non-bank entities140 - Cash level was approximately HKD 164 million as of June 30, 2024 (December 31, 2023: approximately HKD 122 million)140 - Total borrowings were approximately HKD 799 million as of June 30, 2024, an increase of 19% from approximately HKD 674 million as of December 31, 2023141 - Borrowings primarily consist of utilized bank facilities (approximately HKD 540 million) and private notes and other loans (approximately HKD 259 million)141 - The gearing ratio was 38% (December 31, 2023: 33%)141 Material Acquisitions, Disposals and Significant Investments Except as announced and disclosed in Note 18, the Group had no material acquisitions or disposals of subsidiaries and associates during this interim period; as of June 30, 2024, the Group held no significant investments - During this interim period, the Group had no material acquisitions or disposals of subsidiaries and associates, other than those announced and disclosed in Note 18142 - As of June 30, 2024, the Group held no significant investments142 Pledge of the Group's Assets As of June 30, 2024, approximately HKD 1.308 billion of the Group's assets were pledged to banks and other lenders to secure credit, a significant increase from HKD 514 million as of December 31, 2023 - As of June 30, 2024, approximately HKD 1.308 billion of assets were pledged to banks and other lenders to secure credit (December 31, 2023: approximately HKD 514 million)143 Employees and Remuneration Policy As of June 30, 2024, the Group employed 181 full-time staff in Hong Kong, 22 in mainland China, and 66 self-employed sales representatives; the remuneration policy is competitive, referencing industry surveys and individual expertise, and includes MPF schemes and healthcare insurance - As of June 30, 2024, the Group employed 181 full-time staff in Hong Kong (December 31, 2023: 193) and 22 full-time staff in mainland China (December 31, 2023: 22)144 - Additionally, the Group had 66 self-employed sales representatives (December 31, 2023: 60)144 - Remuneration packages are competitive, determined by reference to industry salary surveys, market practices, and individual expertise, with annual salary reviews and discretionary bonuses144 - Benefits include a Mandatory Provident Fund (MPF) scheme and healthcare insurance144 Risk Management The Group implements a three-tier risk management system to address credit, market, liquidity, operational, and regulatory compliance risks; departments are responsible for initial assessment, Risk Management and Legal & Compliance provide advice and oversight, and Internal Audit conducts regular checks - The Group adopts precautionary measures and has established a three-tier risk management system to address unexpected market fluctuations and minimize risks145 - The Risk Management Department is responsible for risk identification and analysis, setting and monitoring risk limits and parameters, and preparing timely risk reports for senior management145 - The Legal and Compliance Department provides advice and monitors legal risks, while the Internal Audit Department conducts regular checks to ensure the elimination of procedural and potential risks145 Credit Risk Credit risk arises from borrowers or counterparties failing to meet their obligations; the Group has established credit approval policies and post-lending monitoring systems, utilizing advanced IT systems for daily monitoring of credit and concentration risk limits - Credit risk is the potential risk of loss arising from a borrower, counterparty, or issuer of a financial instrument failing to meet its obligations146 - Credit approval policies and procedures have been established for pre-lending approval and post-lending monitoring systems146 - Advanced IT systems are utilized for daily monitoring of credit and concentration risk limits146 Market Risk Market risk refers to potential losses from changes in the market price of investment positions, including interest rate, equity price, and foreign exchange rate risks; the Risk Management Department sets limits and guidelines, and monitors and assesses market risk conditions - Market risk refers to the potential loss arising from changes in the market price of investment positions held, including interest rate risk, equity price risk, and foreign exchange rate risk147 - The Risk Management Department is responsible for setting market risk limits and investment guidelines, and for timely monitoring and assessing market risk conditions147 - Market risk models are refined through regular back-testing and stress scenario testing147 Liquidity Risk Liquidity risk refers to the Group's potential inability to obtain sufficient funds in a timely manner to meet payment obligations; the Treasury Department is responsible for fund raising, management, and allocation, the Finance Department ensures compliance, and funds are raised through banking relationships and corporate bond issuance - Liquidity risk refers to the risk that the Group may face in obtaining sufficient capital and funds in a timely manner to meet its payment obligations and funding needs for daily business activities148 - The Treasury Department is responsible for raising, managing, and allocating the Group's funds, while the Finance Department has monitoring systems to ensure compliance with relevant rules148 - The Group maintains good relationships with banks to obtain short-term financing and raises short-term working capital through public and private offerings of corporate bonds148 Operational Risk Operational risk primarily stems from internal procedural negligence, IT system failures, or employee misconduct; the Group manages this risk by enhancing employee risk awareness, establishing internal procedures and operational risk event reporting, and implementing business continuity policies - Operational risk is the risk of financial loss primarily arising from negligence or omissions in internal procedures, IT system failures, or individual misconduct by employees149 - The Group actively organizes briefings to enhance employee risk awareness and instructs all departments to establish internal procedures and control guidelines149 - Operational risk event reporting procedures and business continuity policies are in place to ensure timely corrective actions and handling of emergencies149 Regulatory Compliance Risk As a regulated financial group, the Group is committed to complying with strict and evolving regulatory requirements; the Legal and Compliance team continuously monitors, reviews, and mitigates regulatory risks to protect investor interests and maintain market integrity - The Group is committed to complying with strict and evolving regulatory requirements, including but not limited to those related to protecting investor interests and maintaining market integrity and stability150 - The Legal and Compliance team continuously monitors, reviews, and mitigates the Group's regulatory risks150 Other Information This section covers additional disclosures including interim dividends, directors' and major shareholders' interests, share incentive schemes, and corporate governance practices Interim Dividends The Board has resolved not to declare an interim dividend for the six months ended June 30, 2024, whereas a special dividend of 1.1 HK cents per share was declared for the corresponding period in 2023 - The Board has resolved not to declare an interim dividend for the six months ended June 30, 2024152 - A special dividend of 1.1 HK cents per share was declared for the corresponding period in 2023152 Directors' Interests As of June 30, 2024, several directors held interests in the Company's shares and related shares, primarily through controlled corporation Huaxintong, holding 68.05% of issued shares; some directors also held personal beneficial interests and share options Directors' Long Positions in Shares and Related Shares (As of June 30, 2024) | Director's Name | Capacity | Number of Shares/Related Shares Held | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Mr. Han | Interest in controlled corporation | 4,216,809,571 | 68.05% | | Mr. Han | Beneficial owner | 12,500,000 | 0.20% | | Mr. Lam | Beneficial owner | 113,072,833 | 1.82% | | Mr. Lam | Interest in controlled corporation | 4,216,809,571 | 68.05% | | Mr. Liu Hongwei | Beneficial owner | 12,500,000 | 0.20% | | Mr. Lam Wai Hon | Beneficial owner | 3,000,000 | 0.05% | | Mr. Fang Zhou | Beneficial owner | 3,000,000 | 0.05% | | Mr. Lo Wah Kei | Beneficial owner | 5,000,000 | 0.08% | | Mr. Liu Jipeng | Beneficial owner | 5,000,000 | 0.08% | - Huaxintong is the beneficial owner of 4,216,809,571 shares, with Mr. Lam and Mr. Han holding 51% and 49% interests respectively155 - Mr. Fang Zhou held HKD 5.22 million in debentures155 Interests of Substantial Shareholders and Other Persons As of June 30, 2024, Huaxintong was the largest substantial shareholder, holding 68.05% of issued shares; Mr. Lu Zhiqiang and his controlled corporations held 6.38% interest, and Haitong Securities Co., Ltd. and its controlled corporations held 66.16% interest Substantial Shareholders' Long Positions in Shares (As of June 30, 2024) | Name of Holder of Shares/Related Shares | Capacity | Number of Shares/Related Shares Held | Approximate Percentage of Total Interest | | :--- | :--- | :--- | :--- | | Huaxintong | Beneficial owner | 4,216,809,571 | 68.05% | | Mr. Lu Zhiqiang | Interest in controlled corporation | 395,254,732 | 6.38% | | Oceanwide Holdings Co., Ltd. | Interest in controlled corporation | 395,254,732 | 6.38% | | Oceanwide Group Co., Ltd. | Interest in controlled corporation | 395,254,732 | 6.38% | | China Oceanwide Holdings Group Co., Ltd. | Interest in controlled corporation | 395,254,732 | 6.38% | | Oceanwide Holdings | Interest in controlled corporation | 395,254,732 | 6.38% | | China Oceanwide Group Co., Ltd. | Interest in controlled corporation | 395,254,732 | 6.38% | | Oceanwide Holdings International Financial | Beneficial owner | 395,254,732 | 6.38% | | Haitong Securities Co., Ltd. | Interest in controlled corporation | 4,100,000,000 | 66.16% | | Haitong International Holdings Limited | Interest in controlled corporation | 4,100,000,000 | 66.16% | | Haitong International Securities Group Limited | Interest in controlled corporation | 4,100,000,000 | 66.16% | | Haitong International Strategic Investment Limited | Security interest in shares | 4,100,000,000 | 66.16% | - Mr. Lu Zhiqiang held more than one-third of the voting rights at the general meeting of Oceanwide Holdings Co., Ltd. and is deemed to be interested in all shares held by Oceanwide Holdings Co., Ltd.159 - Haitong Securities Co., Ltd. holds the entire issued share capital of Haitong International Holdings Limited and is deemed to be interested in all shares held by it160 Share Award Scheme The Company adopted a restricted share award scheme in 2010 to recognize contributions and incentivize employees and consultants; the total number of awarded shares under the scheme shall not exceed 94,798,451 shares, and the scheme has been renewed until August 18, 2025; as of June 30, 2024, the trustee held 51,172,002 awarded shares for allocation, with no new awards granted during the period - The Share Award Scheme aims to recognize the contributions of employees and consultants, provide incentives, and assist the Group in retaining and recruiting talent161 - The total number of awarded shares available for allocation under the scheme shall not exceed 94,798,451 shares (1.53% of the total issued shares as of the date of this interim report)161 - The Share Award Scheme has been renewed for five years from August 19, 2020, to August 18, 2025164 - As of June 30, 2024, the trustee held a total of 51,172,002 awarded shares for allocation, with no new awarded shares granted during the period165 Share Option Scheme The Company adopted an employee share option scheme in 2020 to incentivize eligible participants; 152.5 million share options were granted on July 21, 2023, with an exercise price of HKD 0.2 per share, vesting in three tranches, some with performance targets; no new share options were granted during the period ended June 30, 2024 - The Share Option Scheme aims to provide incentives or rewards to eligible participants who have contributed or will contribute to the Group166 - The number of shares available for issue under the Share Option Scheme's authorized limit is 619,704,922 shares, representing 10% of the issued shares as of the date of this interim report166 - A total of 152,500,000 share options were granted on July 21, 2023, with an exercise price of HKD 0.2 per share167 - The share options will vest and become exercisable in three tranches, 12, 24, and 36 months after the grant date, with vesting percentages of 25%, 35%, and 40% respectively171 - Share options granted to independent non-executive directors have no performance targets, while some share options granted to other grantees are subject to performance targets171 Changes in Share Options Under Share Option Scheme (For the six months ended June 30, 2024) | Grantee | Grant Date | As at January 1, 2024 | Granted during the period | Exercised during the period | Cancelled during the period | Lapsed during the period | As at June 30, 2024 | Exercisable as at June 30, 2024 | Exercise Period | Exercise Price (HKD) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Directors and key management personnel | 2023年7月21日 | 66,000,000 | 0 | 0 | 0 | 0 | 66,000,000 | 0 | 2024年7月22日至2033年7月21日 | 0.2 | | Employees | 2023年7月21日 | 86,500,000 | 0 | 0 | 0 | 11,500,000 | 75,000,000 | 0 | 2024年7月22日至2033年7月21日 | 0.2 | | Total | | 152,500,000 | 0 | 0 | 0 | 11,500,000 | 141,000,000 | 0 | | | Disclosure Pursuant to Rule 13.15 of the Listing Rules This section discloses several term loans and margin financing facilities provided by the Company to related parties, including China Oceanwide International Investment Limited, Minyun Limited, and Oceanwide Holdings International Development III Limited; as of June 30, 2024, all these loans remained outstanding and overdue - Discloses several term
华富建业金融(00952) - 2024 - 中期财报